Morgan Stanley is considering changes to its biggest proprietary trading desk, including spinning it out into a hedge fund or opening up the unit to outside investors, according to people familiar with the discussions.

A decision doesn't appear to be imminent, and it is possible that the New York company will decide to leave the elite trading operation, called Process Driven Trading, as is, these people said.

But the talks are the latest sign that the federal government's intervention in the financial industry is pressuring Morgan Stanley to consider or make major changes in many of its most successful businesses.

Since the financial crisis erupted, Morgan Stanley has eliminated several proprietary-trading desks, which make bets on market moves with the firm's capital and borrowed money. A spin-off or restructuring would essentially mark the end of an era at the firm, which revved up proprietary trading during the market's boom.

Since its launch in 1993, PDT has churned out $6.5bn (€4.9bn) in pretax income, according to a person familiar with the results. That is roughly equal to Morgan Stanley's net income since mid-2006.

A Morgan Stanley spokesman said Thursday that "no decisions have been made on PDT." Discussions about restructuring the group have been under way for more than a year, but have accelerated during the past few months. The unit includes several dozen traders.

One reason why Morgan Stanley executives are wrestling with the fate of the trading operation is because some of its top traders are worried by potential government restrictions on pay at firms receiving government aid. Like most traders on Wall Street, those in PDT are paid a percentage of what they earn for Morgan Stanley, meaning their bonuses can exceed $10m a year.

The traders at Morgan Stanley also are concerned about new hiring restrictions for banks that got money through the Troubled Asset Relief Program. Before they may hire foreign workers who need temporary work permits known as H-1B visas, TARP recipients must show that they tried to recruit American workers for the jobs.

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PDT uses quantitative formulas to take advantage of fleeting opportunities in the market. The unit invests largely in stocks, options and futures contracts. Its traders include foreigners with the mathematical and computer skills required for its complex quantitative trading strategies.

The proprietary-trading desk posted strong profits for every year since 1994, except for 2007, when many quantitative funds suffered heavy losses. In August 2007, the trading group suffered a loss of about $500m amid a sudden unwinding of quantitative strategies. Many of its positions rebounded later that year, and PDT finished 2007 roughly flat for the full year, according to people familiar with the results.

If the trading operation is spun out into a hedge fund, Morgan Stanley likely would keep its current investment in the fund and maintain a significant ownership stake in the group that would manage the new fund, a person with knowledge of the discussions said. Morgan Stanley is reluctant to pursue a full spin-off because it wants to stay in the business, but another person familiar with the matter acknowledged that some kind of restructuring could be needed eventually to hold onto PDT's top traders.

Opening up the unit to outside investors could help Morgan Stanley improve the fortunes of its struggling asset-management unit, while allowing Peter Muller, who runs PDT, to expand the trading operation using an influx of assets. Muller is expected to keep running the trading operation.

-- Write to Aaron Lucchetti at aaron.lucchetti@wsj.com and Scott Patterson at scott.patterson@wsj.com